No Sweeter Time for Sugar Reform

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.

June 7, 2013 - 15:53 — CAGW Staff

Among the bevy of wasteful, misguided, market-distorting policies that comprise U.S. agricultural policy, perhaps none is more convoluted or a product of cronyism than the commodity support program for sugar.

An outdated relic of the 1930s, America’s current sugar scheme relies on an array of production quotas and import restrictions to guarantee a price floor for producers of cane and beet sugar. Like most price controls, the sugar program arbitrarily protects producers at the expense of taxpayers and consumers, as well as manufacturers of sugar-containing products and their workers.

Under normal market conditions, sugar producers would have an incentive to produce as much sugar as possible until the marginal cost of higher production outweighed its marginal benefit. Instead, U.S. law prevents American producers from ever reaching such production heights by handing out “allotments” that limit the amount of sugar that processors – corporations or co-ops that convert raw sugar to a marketable product – are allowed to convert each year. Cane and beet sugar farmers operate on a contractual basis with processors; the allotments equate to production quotas, which limit the available supply of sugar and keep prices elevated. In addition, foreign exporters of sugar, whose prices would ordinarily undercut domestic producers until the price for sugar within the U.S. dropped to the world price, are constrained by quotas on the amount that can be imported.

In order to create a hard price floor on sugar, the government offers loans to processors that can be repaid in sugar. If prices fall too far, farmers can sell their product to the government at the precise-sounding but wholly arbitrary rate of 18.75 cents per pound for raw cane sugar or 24.09 cents per pound for refined beet sugar. The resulting system operates as a federally-mandated “call option” for sugar processors in which the government is willing to step in and overpay for their product. Perhaps most ludicrously, the Federal Feedstock Program, created in the 2008 Farm Bill, requires the government to buy surplus sugar to be resold to ethanol producers at a loss, is projected to cost taxpayers $193 million over the next 10 years.

The American sugar market can only be described as a government-mandated cartel, which would likely be deemed illegal if it had arisen without government assistance. As a result, sugar suppliers are able to gouge consumers by collectively restricting supply. In 2012 and 2011, American consumers would have saved $2.9 billion and $4.5 billion, respectively, if sugar had been available at the world price. In 2000, the Government Accountability Office calculated the net economic cost of the sugar program’s inefficiencies at $1.18 billion annually. That estimate included the costs of farmers growing sugar beets instead of other crops that would be more profitable in the absence of sugar supports, costs to consumers, and increased revenue for foreign sugar producers while taking into account the benefits accrued by producers. In 2012, Michael K. Wohlgenant of the American Enterprise Institute estimated an annual cost to consumers of $2.4 billion and a net economic cost of $1 billion.

Because the sugar program disadvantages American businesses that rely on sugar as an input, it gives competitors in Canada and abroad the upper hand in the market for candy, bread, fruit juice, baked beans, applesauce, and any other sugar-using product. Indeed, between 1997 and 2011, the sugar-using industry lost 127,000 jobs in the United States. In Canada, where sugar can be bought at the world price, the value of sugar and confectionary product manufacturing exports to the U.S. grew from $621 million in 1997 to $1.56 billion in 2011, an increase of 157 percent.

As Congress gears up for a vote on a new farm bill that will determine U.S. agriculture policy for the next decade, reforming or eliminating the sugar program should be a high priority. However, even modest reforms have proved unpalatable in a Congress beholden to special interests. On May 21, Sen. Jeanne Shaheen (D-N.H.) proposed amendment #925 to the farm bill (officially called the “Agriculture Reform, Food, and Jobs Act of 2013”), which would have eliminated the government’s guarantee to purchase sugar producers’ excess product at a pre-determined price. According to Sen. Shaheen’s office, the Congressional Budget Office expected her amendment to save taxpayers $72 million in the next 10 years. The amendment failed by a vote of 45-54.

On May 22, Sen. Mary Landrieu (D-La.) earned the dubious honor of Citizens Against Government Waste’s May 2013 Porker of the Month when she made her opposition to Sen. Shaheen’s amendment clear, stating that she would focus on “protecting and supporting the sugar program that functions effectively to balance the amount of sugar coming into our country at no subsidy to the taxpayer.” She added, “yes, the price of a candy bar might be a penny or two higher, but who needs cheaper candy bars? No one.” How Sen. Landrieu came to the conclusion that existing import quotas are anything more than an arbitrary sop to sugar producers is unclear, but it is hard to ignore the fact that Louisiana produces more sugarcane than any U.S. state except Florida.

In Washington, where policymakers like to add as much melodrama as possible to even the tiniest of proposals, it is easy to dismiss sugar reform as a fight over cupcakes and candy. Such flippancy ignores the very real pain inflicted on households and individuals whose jobs have moved abroad or whose grocery bills have grown unnecessarily. In today’s climate of slow job growth and fiscal constraint, any program that is regressive, kills jobs, and costs taxpayers money should be repealed. No matter how sweet the status quo has been to producers, sugar should be at the top of that list.